I am curious if anyone used management companies, right out of the gate? It is less profit but less time I have to devote…right? I am full time student and not in the position to leave my career for RE…yet. I want to be a investor not a landlord. Am i looking at this right?
I am curious if anyone used management companies, right out of the gate?
- Some have, I did not, so that I could learn how to manage properties myself. It’s not that hard once you learn the business
It is less profit but less time I have to devote…right? I am full time student and not in the position to leave my career for RE…yet. I want to be a investor not a landlord. Am i looking at this right?
- Basically, yes. You will spend far more time rehabbing properties than managing them, though, so I would try to manage one or two in the beginning and see how it goes and just outsource your repair work. Its really pretty easy
I had a demanding FT job and did go with a mgmt company out of the gate, with no regrets whatsoever. I did interview several, and checked references carefully, and fired one before finding the right one.
I don’t have to do the PM work myself to learn it, in my view. I have spent time asking them lots of questions, and have “audited” a few of my tenant files to be comfortable that they were following appropriate tenant screening procedures. I’ve thought through what they do, and have challenged their practices a few times where their practices didn’t seem to get the best results, or didn’t align with my interests as well as I’d like.
I have thus been able to grow the RE business much much faster than I otherwise would have. And it forced me to have the discipline to spend the limited time I have in the most valuable fashion: on locating deals, inspecting properties, making offers, dealing with banks. I just could not conceivably deal with tenant and routine maintenance issues as well.
My PM charges 8% of collected rent, one-half month rent when placing a new tenant, $27/hr for in house maintenance services with no upcharge for 3rd party contractors or any materials. I am satisfied with the arrangement. Other PMs in the area (like Real Property Management, a huge franchise outfit) charge 10% of rent, but don’t charge extra for tenant placement. Many PM companies upcharge 3rd party contractor fees by 15% and charge $35-45/hr for maintenance.
I actually think I like the model with no leasing fees better seems to align our interests better. The first model is preferred by my PM because it gives them the money to pay commissions to their leasing agent when placing tenants. Results have been good, so I’m not making waves.
What monthly NOI were you getting going straight with a management company?
Profit is really the wrong term. You make a profit when you sell the property. You earn cash flow while you hold the property for rental use.
I have always used professional property managers. Yes, they do take a bite out of the cash flow, but the professional property managers know the landlord tenant law, know how to screen tenants, know how to run credit and employer checks, know their way around the eviction process and usually have repair contractors on speed dial should any emergency arise.
I have several properties in several different states and never tried to be either a local or a long distance landlord.
Good advice. I manage my managers. My experience over the years is that 3rd party management will become increasingly expensive and less cost effective, whenever I fail to supervise them closely enough. They get lazy, often become dishonest, and often sell, or trade, accounts. I’ve been sold off several times over the years, and had to start from scratch regarding my management approach. I suppose I’m the client from hell in some instances.
Meantime, where I can, I train my own management team to follow a system that is quite contrary to conventional management practices. I cater to higher risk prospects who don’t have great credit, but have good incomes. Why? Because I can get more money out of these people.
I get giant deposits, often co-signers, always over-retail rents, and nearly always longer rental terms: 18 to 24/mos.
I don’t settle for the lower-risk prospects, because they’ve got more options; command lower rents; lower deposits; if not shorter terms. No thanks.
And all it takes is a lost job, a missed car payment, and maybe a medical bill coupled with an attitude, to turn the once low-risk client into the tenant from hell. Really, no thanks.
Have you ever noticed how many “good tenants” go bad? Without huge deposits (or leverage of some kind) any tenant can turn into a mess. FWIW
WAIT! I disagree. The last few years have shown that buy and hold capitalizing on the appreciation, is not a good plan. Its the monthly rent and cash flow thats the wealth builder. I don’t care if the property sells for what I bought it at, i made the monthly. Besides i plan on holding the house forever and collecting the rent for cash flow into oblivion. Im risk averse.
:eek2 Umm… The last few years have shown that buying in the wrong market, is not a good plan… not the appreciation play. While, cash flow can certainly make you some money, I think the WEALTH builder in the buy and hold strategy is the combination of an appreciating asset that has decreasing debt… otherwise why wouldn’t you just invest in corporate bonds and forget the headache of managing an asset.
I don’t see a distinction. Landlords ARE investors, in for the long haul.
Whether you buy to hold or buy to flip, you want to be an investor – NOT a speculator.